Real-time bank accounts provide small business owners with an easy way to review their finances in just a few minutes each day. This first step provides a simplified Financial Foundation, allowing you to easily set up universal accounting reports and learn how to use them to drive profits. You no longer use a reactive approach to finances, but instead have an effective and proactive plan that teaches you how to benefit from your real-time accounting method. 

It may be overwhelming as you begin to establish your Financial Foundation, so it’s best to partner with an accounting advisor to create a reporting schedule and learn how to use your accounting reports more effectively over time. Here’s how you can set up your financial foundation and use accounting coaching to learn what the accounting reports are telling you.

Why You Need Accounting Reports

Many small business owners are so busy taking care of their customers, their team members, the fire of the day, they don’t find the time to review their financials. It’s understandable. But as a result, your business decisions in that environment can lead to financial disaster down the road. 

When you use real-time accounting reports, you look at the key indicators that help you make confident business decisions. You just need to learn what numbers to watch and how to review those numbers to determine financial health. 

You probably run these reports already, but consistently using them is the key to success. Here are some key indicators to look for within each accounting report. 

Profit and Loss Statement or Income Statement

The profit and loss (P&L) report or income statement simply summarizes the revenues, costs, and expenses your business incurs. This tool provides:

  • Your financial status during specific time periods
  • How much you earned during this time
  • Revenue recognition based on the money coming in and going out of the company

It is key to your decision-making process because it is the clearest view of whether you are making or losing money when all your expenditures are considered. These numbers tell you when you might need to take corrective action, or when opportunities for expansion might exist.

Balance Sheet

Accountants view this as the most important financial statement when looking at financial health, in hand with your income and cash flow statements. Your balance sheet shows your net worth and can assist with:

  • Evaluating your overall financial position
  • Showing whether you can cover your operating costs
  • Determining how best to meet your financial obligations
  • Knowing when you need to use credit to cover costs of your operations (and why this happened)
  • Comparing with past performance

Your balance sheet allows you to look for ways to improve your finances while taking advantage of opportunities. You can also learn how to make accurate forecasts for future performance based on trends.

Cash Flow Statement

As the name implies, this statement shows your cash flow coming in and out of the business. It provides:

  • The cash going towards operating, investing, and financing activities
  • The total cash in relation to these three activities
  • The total change in cash over a certain period
  • Your opening and closing cash balance over a certain period of time

This information is crucial to your business as you can see how you spend your money. This in turn shows you where you are overspending, when you might see more cash come in or go out of your accounts, and how much money you receive compared to how much is needed for operations. 

The main difference between your income statement and cash flow statement is the income statement includes money not yet collected, so it can be misleading. Cash flow is money actually received and actually spent.

Breaking Down Profit and Loss

To gain even more insight, looking at your P&L by the customer and by the job is even more helpful:

Profit and Loss by Customer

Most small business owners are just happy to have customers. However, each customer affects your profit and loss in different ways. For example, if you have a small-time customer who places minimum orders, but that order tends to take more time and effort, they are affecting your bottom line in a negative way. 

When you consider profit and loss based on each individual customer, you can spot potential issues where a customer might actually be costing you money. You can also compare specific clients’ P&L to your company’s overall performance.

This information can help you define your most profitable customers so you marketing and sales teams can go find more like them.

Profit and Loss by Job

As with the above, you can consider the P&L for each job. This way you understand numbers, such as a job’s percent gross profit margin and net income, and can even sort jobs based on different criteria. You can see which jobs are actually profitable and which actually cost you money. You can also look at things like the value of a certain job to determine its worth.

These two breakdowns for P&L allow you to see the most and least profitable clients and undertakings for your business. You can target how you can improve the underperformers such as restructuring prices to improve profit margins while looking for ways to further incentivize the more profitable endeavors for your company.

Why You Can’t Set Accounting Reports and Forget Them

When you transition to your real-time accounting model, you might hope you can set up your accounts and reports and forget about them. However, the key to real-time accounting is the ‘active’, in ‘proactive’. When you learn how to read your reports, your small business accounting empowers you to constantly improve your profit-making skills. When you set up the habit of reviewing the reports and understand what they are telling you, the time it takes can be minimal and rewarding. For accountability, it makes more sense to partner with accountants for small businesses who take an active interest in your success. 

Instead of having an accountant who just sets up the reports, or who even might send them to you, a partner teaches you what the numbers are telling you. You get a different perspective of your options to make the most of the information. Ultimately you gain a partner who shares your interest in long-term success, so you maintain a forward-looking approach that keeps you profitable. All based on your real-time numbers.

Make the Most of Your Accounting Reports

When you want to make the most of your accounting reports, contact the Accounting Advisors at Tolbert CPA. Our Business Compass Program provides the accounting coaching you need to set up and build on your Financial Foundation. 

If you’re not ready for the full program, consider our 90-day Foundations Program, where we strengthen your business financials and ensure every financial business decision is moving you closer to your goals. Sign up for an initial Foundations Program conversation with us here. 

As your partner, we are there to help you leverage the real-time accounting method with an ongoing system that ultimately decreases your operating account percentage, increases your profit percentage, and creates clarity, confidence, and control of your business financials.